PRINCIPAL FUNDS, INC.
AMENDED AND RESTATED SUB-ADVISORY AGREEMENT
SMALLCAP VALUE FUND II, MIDCAP VALUE FUND I AND GLOBAL
MULTI-STRATEGY FUND
AGREEMENT executed as of July 1, 2015, by and between
PRINCIPAL MANAGEMENT CORPORATION (hereinafter called "the
Manager"), and LOS ANGELES CAPITAL MANAGEMENT AND
EQUITY RESEARCH, INC. ("LA Capital") (hereinafter called "the Sub-
Advisor").
W I T N E S S E T H:
WHEREAS, the Manager is the manager and investment adviser to
each Series of Principal Funds, Inc., (the "Fund"), an open-end
management investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Manager desires to retain the Sub-Advisor to furnish
it with investment advisory services with respect to assets allocated by
the Manager for management by the Sub-Adviser for a portion of the
portfolios of the SmallCap Value Fund II, MidCap Value Fund I, and the
Global Multi-Strategy Fund (each hereinafter called the "Series"), which
the Manager has agreed to provide to the Fund, and the Sub-Advisor
desires to furnish such services; and
WHEREAS, The Manager has furnished the Sub-Advisor with copies
properly certified or authenticated of each of the following and will
promptly provide the Sub-Advisor with copies properly certified or
authenticated of any amendment or supplement thereto:
(a) Management Agreement (the "Management Agreement") with
the Fund;
(b) The Fund's registration statement and financial statements as
filed with the Securities and Exchange Commission;
(c) The Fund's Articles of Incorporation and By-laws;
(d) Policies, procedures or instructions adopted or approved by the
Board of Directors of the Fund relating to obligations and
services to be provided by the Sub-Advisor.
NOW, THEREFORE, in consideration of the premises and the terms
and conditions hereinafter set forth, the parties agree as follows:
1. Appointment of Sub-Advisor
In accordance with and subject to the Management Agreement,
the Manager hereby appoints the Sub-Advisor to act as the
Manager's agent and attorney-in-fact with respect to the
investment and reinvestment of assets in the Series with full
power and authority to direct any custodian of the assets of the
Series to purchase, sell or exchange any stocks, bonds, or other
securities or such other assets which are acceptable to the Sub-
Advisor (individually, "security" and collectively, "securities") and
to issue directly to a broker or dealer such orders for the
purchase, sale or exchange of securities or other property, as
the Sub-Advisor may deem appropriate and without prior
consultation with the Manager, subject to the control and
direction of the Manager and the Fund's Board of Directors, for
the period and on the terms hereinafter set forth. The Sub-
Advisor accepts such appointment and agrees to furnish the
services hereinafter set forth for the compensation herein
provided. The Sub-Advisor shall for all purposes herein be
deemed to be an independent contractor and shall, except as
expressly provided or authorized, have no authority to act for or
represent the Fund or the Manager in any way or otherwise be
deemed an agent of the Fund or the Manager.
2. Obligations of and Services to be Provided by the Sub-Advisor
The Sub-Advisor will:
(a) Provide investment advisory services, including but not
limited to research, advice and supervision for the Series.
(b) Furnish to the Board of Directors of the Fund for approval
(or any appropriate committee of such Board), and revise
from time to time as conditions require, a recommended
investment program for the Series consistent with each
Series investment objective and policies.
(c) Implement the approved investment program by placing
orders for the purchase and sale of securities without prior
consultation with the Manager and without regard to the
length of time the securities have been held, the resulting
rate of portfolio turnover or any tax considerations, subject
always to the provisions of the Fund's registration
statement, Articles of Incorporation and Bylaws and the
requirements of the 1940 Act, as each of the same shall be
from time to time in effect.
(d) Advise and assist the officers of the Fund, as requested by
the officers, in taking such steps as are necessary or
appropriate to carry out the decisions of its Board of
Directors, and any appropriate committees of such Board,
regarding the general conduct of the investment business of
the Series.
(e) Maintain, in connection with the Sub-Advisor's investment
advisory services obligations, compliance with the 1940 Act
and the regulations adopted by the Securities and
Exchange Commission thereunder and the Series'
investment strategies and restrictions as stated in the
Fund's prospectus and statement of additional information.
(f) Report to the Board of Directors of the Fund at such times
and in such detail as the Board of Directors may reasonably
deem appropriate in order to enable it to determine that the
investment policies, procedures and approved investment
program of the Series are being observed.
(g) Upon request, provide assistance and recommendations for
the determination of the fair value of certain securities when
reliable market quotations are not readily available for
purposes of calculating net asset value in accordance with
procedures and methods established by the Fund's Board
of Directors.
(h) Furnish, at its own expense, (i) all necessary investment
and management facilities, including salaries of clerical and
other personnel required for it to execute its duties faithfully,
and (ii) administrative facilities, including bookkeeping,
clerical personnel and equipment necessary for the efficient
conduct of the investment advisory affairs of the Series.
Except for expenses specifically assumed or agreed to be
paid by the Sub-Advisor under this Agreement, the Sub-
Advisor shall not be liable for any expenses of the Manager,
the Fund or the Series including, without limitation, (i)
interest and taxes, (ii) brokerage commissions and other
costs in connection with the purchase or sale of securities
or other investment instruments with respect to the Series,
and (iii) custodian fees and expenses.
(i) Open accounts with broker-dealers and futures commission
merchants ("broker-dealers"), select broker-dealers to effect
all transactions for the Series, place all necessary orders
with broker-dealers or issuers (including affiliated broker-
dealers), and negotiate commissions, if applicable. To the
extent consistent with applicable law, purchase or sell
orders for the Series may be aggregated with
contemporaneous purchase or sell orders of other clients of
the Sub-Advisor. In such event allocation of securities so
sold or purchased, as well as the expenses incurred in the
transaction, will be made by the Sub-Advisor in the manner
the Sub-Advisor considers to be the most equitable and
consistent with its fiduciary obligations to the Fund and to
other clients. The Sub-Advisor will report on such
allocations at the request of the Manager, the Fund or the
Fund's Board of Directors providing such information as the
number of aggregated trades to which the Series was a
party, the broker-dealers to whom such trades were
directed and the basis for the allocation for the aggregated
trades. The Sub-Advisor shall use its best efforts to obtain
execution of transactions for the Series at prices which are
advantageous to the Series and at commission rates that
are reasonable in relation to the benefits received.
However, the Sub-Advisor may select brokers or dealers on
the basis that they provide brokerage, research or other
services or products to the Sub-Advisor. To the extent
consistent with applicable law, the Sub-Advisor may pay a
broker or dealer an amount of commission for effecting a
securities transaction in excess of the amount of
commission or dealer spread another broker or dealer
would have charged for effecting that transaction if the Sub-
Advisor determines in good faith that such amount of
commission is reasonable in relation to the value of the
brokerage and research products and/or services provided
by such broker or dealer. This determination, with respect
to brokerage and research products and/or services, may
be viewed in terms of either that particular transaction or
the overall responsibilities which the Sub-Advisor and its
affiliates have with respect to the Series as well as to
accounts over which they exercise investment discretion.
Not all such services or products need be used by the Sub-
Advisor in managing the Series. In addition, joint
repurchase or other accounts may not be utilized by the
Series except to the extent permitted under any exemptive
order obtained by the Sub-Advisor provided that all
conditions of such order are complied with.
(j) Maintain all accounts, books and records with respect to the
Series as are required of an investment advisor of a
registered investment company pursuant to the 1940 Act
and Investment Advisers Act of 1940 (the "Investment
Advisers Act"), and the rules thereunder, and furnish the
Fund and the Manager with such periodic and special
reports as the Fund or Manager may reasonably request.
In compliance with the requirements of Rule 31a-3 under
the 1940 Act, the Sub-Advisor hereby agrees that all
records that it maintains for the Series are the property of
the Fund, agrees to preserve for the periods described by
Rule 31a-2 under the 1940 Act any records that it maintains
for the Series and that are required to be maintained by
Rule 31a-1 under the 1940 Act, and further agrees to
surrender promptly to the Fund any records that it maintains
for a Series upon request by the Fund or the Manager. The
Sub-Advisor has no responsibility for the maintenance of
Fund records except insofar as is directly related to the
services the Sub-Advisor provides to a Series.
(k) Observe and comply with Rule 17j-1 under the 1940 Act
and the Sub-Advisor's Code of Ethics adopted pursuant to
that Rule as the same may be amended from time to time.
The Manager acknowledges receipt of a copy of Sub-
Advisor's current Code of Ethics. Sub-Advisor shall
promptly forward to the Manager a copy of any material
amendment to the Sub-Advisor's Code of Ethics along with
certification that the Sub-Advisor has implemented
procedures for administering the Sub-Advisor's Code of
Ethics.
(l) From time to time as the Manager or the Fund may request,
furnish the requesting party reports on portfolio transactions
and reports on investments held by a Series, all in such
detail as the Manager or the Fund may reasonably request.
The Sub-Advisor will make available its officers and
employees to meet with the Fund's Board of Directors at
the Fund's principal place of business on due notice to
review the investments of a Series.
(m) Provide such information as is customarily provided by a
sub-advisor and may be required for the Fund or the
Manager to comply with their respective obligations under
applicable laws, including, without limitation, the Internal
Revenue Code of 1986, as amended (the "Code"), the 1940
Act, the Investment Advisers Act, the Securities Act of
1933, as amended (the "Securities Act"), and any state
securities laws, and any rule or regulation thereunder.
(n) Vote proxies received on behalf of the Series in a manner
consistent with Sub-Advisor's proxy voting policies and
procedures and provide a record of votes cast containing all
of the voting information required by Form N-PX in an
electronic format to enable the Series to file Form N-PX as
required by SEC rule.
(o) Respond to tender offers, rights offerings and other
voluntary corporate action requests affecting securities held
by the Fund and complete and file notices of claims in
connection with class action lawsuits concerning securities
owned by the Fund.
3. Prohibited Conduct
In providing the services described in this agreement, the Sub-
Advisor will not consult with any other investment advisory firm
that provides investment sub-advisory services to the Fund or a
fund that is under common control with the Fund regarding
transactions for the Fund in the securities or other assets
allocated to the Sub-Advisor pursuant to this Agreement, except
as provided by Rule 12d-3-1 under the 1940 Act.
4. Compensation
As full compensation for all services rendered and obligations
assumed by the Sub-Advisor hereunder with respect to the
Series, the Manager shall pay the compensation specified in
Appendix A to this Agreement.
5. Liability of Sub-Advisor
Neither the Sub-Advisor nor any of its directors, officers,
employees, agents or affiliates shall be liable to the Manager, the
Fund or its shareholders for any loss suffered by the Manager or
the Fund resulting from any error of judgment made in the good
faith exercise of the Sub-Advisor's investment discretion in
connection with selecting investments for a Series or as a result
of the failure by the Manager or any of its affiliates to comply with
the terms of this Agreement and/or insurance laws and rules
except for losses resulting from willful misfeasance, bad faith or
gross negligence of, or from reckless disregard of, the duties of
the Sub-Advisor or any of its directors, officers, employees,
agents, or affiliates. The Sub-Advisor shall not have any
responsibilities with respect to any assets of the Fund other than
the Series. The Manager shall not be responsible for any loss
incurred by reason of any act or omission of any dealer or
broker, or the Manager, or any custodian.
The Sub-Advisor shall be responsible only for managing the
Series in good faith and in accordance with the investment
objectives, fundamental policies and restrictions, and shall have
no responsibility whatsoever for, and shall incur no liability on
account of (i) selection or establishment of such investment
objectives, fundamental policies and restrictions (ii) advice on, or
management of, any other assets for Manager or the Fund, (iii)
filing of any tax or information returns or forms, withholding or
paying any taxes, or seeking any exemption or refund for the
Manager or the Fund, (iv) registration of the Fund or Series with
any government or agency, or (v) administration of the plans and
trusts investing through the Fund, (vi) overall Fund compliance
with the requirements of the 1940 Act, which requirements are
outside of the Sub-Advisor's control, and any requirements of
Subchapter M of the Internal Revenue Code of 1986, as
amended, which are outside of the Sub-Advisor's control and
shall be indemnified and held harmless by Manager for any loss
in carrying out the terms and provisions of this Agreement,
including reasonable attorney's fees, indemnification to the Fund,
or any shareholder thereof and, brokers and commission
merchants, fines, taxes, penalties and interest. Sub-Advisor,
however, shall be liable for any liability, damages, or expenses of
Manager or the Fund arising out of the negligence, malfeasance
or violation of applicable law by any of its employees in providing
investment management services under this Agreement; and, in
such cases, the indemnification by Manager, referred to above,
shall be inapplicable, and the Sub-Advisor shall indemnify and
hold harmless the Fund and Manager for any loss arising
therefrom.
6. Supplemental Arrangements
The Sub-Advisor may enter into arrangements with other
persons affiliated with the Sub-Advisor or with unaffiliated third
parties to better enable the Sub-Advisor to fulfill its obligations
under this Agreement for the provision of certain personnel and
facilities to the Sub-Advisor, subject to written notification to and
approval of the Manager and, where required by applicable law,
the Board of Directors of the Fund.
7. Regulation
The Sub-Advisor shall submit to all regulatory and administrative
bodies having jurisdiction over the services provided pursuant to
this Agreement any information, reports or other material which
any such body may request or require pursuant to applicable
laws and regulations.
8. Manager's Representations
The Manager represents and warrants that (i) it is registered as
an investment adviser under the Investment Advisers Act and
will continue to be so registered for so long as this Agreement
remains in effect; (ii) it is not prohibited by the 1940 Act or the
Investment Advisers Act from performing the services
contemplated by this Agreement; (iii) it has met, and will continue
to meet for so long as this Agreement remains in effect, any
applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory
agency, necessary to be met in order to perform the services
contemplated by this Agreement; (iv) it has the authority to enter
into and perform the services contemplated by this Agreement,
and (v) it will immediately notify the Sub-Advisor of the
occurrence of any event that would disqualify the Manager from
serving as an investment advisor of an investment company
pursuant to Section 9(a) of the 1940 Act or otherwise.
9. Duration and Termination of This Agreement
This Agreement shall become effective as of the date of its
execution and, unless otherwise terminated, shall continue in
effect thereafter from year to year provided that the continuance
is specifically approved at least annually either by the Board of
Directors of the Fund or by a vote of a majority of the outstanding
voting securities of the Series and in either event by a vote of a
majority of the Board of Directors of the Fund who are not
interested persons of the Manager, Principal Life Insurance
Company, the Sub-Advisor or the Fund cast in person at a
meeting called for the purpose of voting on such approval.
If the shareholders of a Series fail to approve the Agreement or
any continuance of the Agreement in accordance with the
requirements of the 1940 Act, the Sub-Advisor will continue to
act as Sub-Advisor with respect to the Series pending the
required approval of the Agreement or its continuance or of any
contract with the Sub-Advisor or a different manager or sub-
advisor or other definitive action; provided, that the
compensation received by the Sub-Advisor in respect to the
Series during such period is in compliance with Rule 15a-4 under
the 1940 Act.
This Agreement may be terminated at any time without the
payment of any penalty by the Board of Directors of the Fund or
by the Sub-Advisor, the Manager or by vote of a majority of the
outstanding voting securities of the Series on sixty days written
notice. This Agreement shall automatically terminate in the event
of its assignment. In interpreting the provisions of this Section 9,
the definitions contained in Section 2(a) of the 1940 Act
(particularly the definitions of "interested person," "assignment"
and "voting security") shall be applied.
10. Indemnification
(a) The Sub-Advisor agrees to indemnify and hold harmless
the Manager, any affiliated person within the meaning of
Section 2(a)(3) of the 1940 Act ("affiliated person") of the
Manager and each person, if any who, within the meaning
of Section 15 of the Securities Act controls ("controlling
persons") the Manager, against any and all losses, claims,
damages, liabilities or litigation, including reasonable legal
expenses (collectively "Losses") to which the Manager or
such affiliated person or controlling person of the Manager
may become subject under the Securities Act, the 1940 Act,
the Investment Advisers Act, under any other statute, law,
rule or regulation at common law or otherwise, arising out of
the Sub-Advisor's responsibilities hereunder (1) to the
extent of and as a result of the willful misconduct, bad faith,
or gross negligence by the Sub-Advisor, any of the Sub-
Advisor's employees or representatives or any affiliate of or
any person acting on behalf of the Sub-Advisor; or (2) as a
result of any untrue statement of a material fact contained
in the Registration Statement, including any amendment
thereof or any supplement thereto, or the omission to state
therein a material fact required to be stated therein or
necessary to make the statement therein not misleading, if
such a statement or omission was made in reliance upon
and in conformity with written information furnished by the
Sub-Advisor to the Manager specifically for use therein;
provided, however, that in no case is the Sub-Advisor's
indemnity in favor of the Manager or any affiliated person or
controlling person of the Manager deemed to protect such
person against any liability to which any such person would
otherwise be subject by reason of willful misconduct, bad
faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations and
duties under this Agreement.
(b) The Manager agrees to indemnify and hold harmless the
Sub-Advisor, any affiliated person and any controlling
person of the Sub-Advisor, if any, against any and all
Losses to which the Sub-Advisor or such affiliated person
or controlling person of the Sub-Advisor may become
subject under the Securities Act, the 1940 Act, the
Investment Advisers Act, under any other statute, law, rule
or regulation, at common law or otherwise, arising out of the
Manager's responsibilities as investment manager of the
Fund (1) to the extent of and as a result of the willful
misconduct, bad faith, or gross negligence by the Manager,
any of the Manager's employees or representatives or any
affiliate of or any person acting on behalf of the Manager, or
(2) as a result of any untrue statement of a material fact
contained in the Registration Statement, including any
amendment thereof or any supplement thereto, or the
omission to state therein a material fact required to be
stated therein or necessary to make the statement therein
not misleading; provided, however, that in no case is the
Manager's indemnity in favor of the Sub-Advisor or any
affiliated person or controlling person of the Sub-Advisor
deemed to protect such person against any liability to which
any such person would otherwise be subject by reason of
willful misconduct, bad faith or gross negligence in the
performance of its duties or by reason of its reckless
disregard of its obligations and duties under this
Agreement. It is agreed that the Manager's indemnification
obligations under this Section will extend to expenses and
costs (including reasonable attorneys fees) incurred by the
Sub-Advisor as a result of any litigation brought by the
Manager alleging the Sub-Advisor's failure to perform its
obligations and duties in the manner required under this
Agreement unless judgement is rendered for the Manager.
11. Amendment of this Agreement
No material amendment of this Agreement shall be effective until
approved, if required by the 1940 Act or the rules, regulations,
interpretations or orders issued thereunder, by vote of the
holders of a majority of the outstanding voting securities of the
Series and by vote of a majority of the Board of Directors of the
Fund who are not interested persons of the Manager, the Sub-
Advisor, Principal Life Insurance Company or the Fund cast in
person at a meeting called for the purpose of voting on such
approval.
12. General Provisions
(a) Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the
purposes hereof. This Agreement shall be construed and
enforced in accordance with and governed by the laws of the
State of Iowa. The captions in this Agreement are included
for convenience only and in no way define or delimit any of
the provisions hereof or otherwise affect their construction or
effect.
(b) Any notice under this Agreement shall be in writing,
addressed and delivered or mailed postage pre-paid to the
other party at such address as such other party may
designate for the receipt of such notices. Until further notice
to the other party, it is agreed that the address of the
Manager for this purpose shall be the Principal Financial
Group, Xxx Xxxxxx, Xxxx 00000-0000, and the address of
the Sub-Advisor shall be 00000 Xxxxx Xxxxxx Xxxx, Xxx 000,
Xxx Xxxxxxx, XX 00000.
(c) The Sub-Advisor will promptly notify the Manager in writing
of the occurrence of any of the following events:
(1) the Sub-Advisor fails to be registered as an investment
adviser under the Investment Advisers Act or under the
laws of any jurisdiction in which the Sub-Advisor is
required to be registered as an investment advisor in
order to perform its obligations under this Agreement.
(2) the Sub-Advisor is served or otherwise receives notice of
any action, suit, proceeding, inquiry or investigation, at
law or in equity, before or by any court, public board or
body, involving the affairs of a Series.
(d) The Manager shall provide (or cause the Series custodian to
provide) timely information to the Sub-Advisor regarding
such matters as the composition of the assets of a Series,
cash requirements and cash available for investment in a
Series, and all other reasonable information as may be
necessary for the Sub-Advisor to perform its duties and
responsibilities hereunder.
(e) The Sub-Advisor represents that it will not enter into any
agreement, oral or written, or other understanding under
which the Fund directs or is expected to direct portfolio
securities transactions, or any remuneration, to a broker or
dealer in consideration for the promotion or sale of Fund
shares or shares issued by any other registered investment
company. Sub-advisor further represents that it is contrary to
the Sub-advisor's policies to permit those who select brokers
or dealers for execution of fund portfolio securities
transactions to take into account the broker or dealer's
promotion or sale of Fund shares or shares issued by any
other registered investment company.
(f) The Sub-Advisor agrees that neither it nor any of its affiliates
will in any way refer directly or indirectly to its relationship
with the Fund, the Series, or the Manager or any of their
respective affiliates in offering, marketing or other
promotional materials without the express written consent of
the Manager.
(g) This Agreement contains the entire understanding
and agreement of the parties.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement on the date first above written.
PRINCIPAL MANAGEMENT CORPORATION
By /s/ Xxxxxxx X. Beer
President & CEO
LOS ANGELES CAPITAL MANAGEMENT AND EQUITY
RESEARCH, INC.
By /s/Xxxxxx X. Xxxxxxx
Chairman
APPENDIX A
The Sub-Advisor shall serve as investment sub-advisor for each
Series of the Fund identified below. The Manager will pay the Sub-
Advisor, as full compensation for all services provided under this
Agreement, a fee computed at an annual rate as shown below (the "Sub-
Advisor Fee"):
Series
Sub-Advisor Fee (as a Percentage of
Daily Net Assets)
SmallCap Value Fund II
First $100,000,000 of assets 0.50%
Next $200,000,000 of assets 0.45%
Assets over $300,000,000 0.35%
MidCap Value Fund I
All Assets.......................................0.30%
Global Multi-Strategy Fund
First $250 million ............................ 1.00%
Next $100 million ............................ 0.90%
Next $100 million ............................ 0.75%
Assets over $450 million .................. 0.65%
The Sub-Advisor Percentage Fee shall be accrued for each
calendar day and the sum of the daily fee accruals shall be paid monthly
to the Sub-Advisor. The daily fee accruals will be computed by
multiplying the fraction of one over the number of calendar days in the
year by the applicable annual rate described above and multiplying this
product by the net assets of the Series, as determined in accordance
with the Series' Prospectus and Statement of Additional Information as of
the close of business on the previous business day on which the Series
was open for business. With respect to the SmallCap Value Fund II and
MidCap Value Fund I, cash and cash equivalents shall be included in the
Series net assets calculation up to a maximum of 1.00% of the Series
net assets. If the Manager requests the Sub-Advisor to raise cash in the
Series portfolio in excess of 1.00% of the Series net assets for the
purpose of funding redemptions from the Series, such amount requested
shall be included in the Series net assets calculation.
If this Agreement becomes effective or terminates before the end of
any month, the fee (if any) for the period from the effective date to the
end of such month or from the beginning of such month to the date of
termination, as the case may be, shall be prorated according to the
proportion which such period bears to the full month in which such
effectiveness or termination occurs.
LAC - 1
